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US Fed cuts interest rate by 25 bps to 4-4.25%, pencils in two more rate cuts in 2025
The US Federal Reserve, besides the interest rate cut, delivered a higher US GDP growth forecast while maintaining its inflation and unemployment projections.
The US Federal Reserve on Wednesday lowered interest rates for the first time this year, flagging slower job gains and risks to employment as policymakers face heightened pressure under President Donald Trump.
The US Fed cut the benchmark lending rate by 25 basis points, to a range between 4.0% and 4.25%, while penciling in two more rate cuts this year. The central bank has lifted its US GDP growth forecast to 1.6% for 2025 from 1.4% in June. It made no change to its unemployment and inflation forecasts.
One basis point is one-hundredth of a percentage point.
The US Fed, in a statement announcing its rate cut, said that “downside risks to employment have risen,” even as inflation has “moved up and remains somewhat elevated”. It noted that job gains have slowed while the unemployment rate has inched up—even as it “remains low”.
Only new Fed Governor Stephen Miran, a Trump ally, voted against this decision, preferring a larger rate reduction. The other 11 voting members of the Federal Open Market Committee voted for the quarter-point cut.
This was Miran's first US Fed meeting. The chair of the White House Council of Economic Advisers was sworn in just before the two-day gathering started on Tuesday, after a swift Senate confirmation on Monday night.
Politics & Policy
The US Federal Reserve faces competing pressures in adjusting rates, with Trump's sweeping tariffs fueling inflation risks while the job market weakens.
The central bank typically holds rates at higher levels to bring inflation back to its 2% target, but could slash rates to support the labour market too.
Trump has intensified pressure on the Fed this year, calling repeatedly for major rate cuts and criticising Fed Chair Jerome Powell.
Besides appointing Miran when another official retired early, Trump moved in August to fire Fed Governor Lisa Cook, sparking a legal fight that could have prevented her from attending the gathering.
Meanwhile, Miran has come under fire from Democratic lawmakers for taking a leave of absence rather than resigning from his White House role, a decision he attributed to the short tenure he fills, ending 31 January.
Analyst Take On US Fed Rate Cut
Economists had expected more division among the FOMC as policymakers walk a tightrope balancing inflation and labour market risks. But this time, employment concerns won out, even as inflation remains above 2.0%.
The expectation of two more US Fed rate cuts this year is slightly more than anticipated previously.
The central made its last rate cut in December, and had held interest rates steady all year as it monitored the effects of Trump's tariffs on inflation. The impact so far appears limited but economists warn their full effects have yet to materialise.
Donald Trump & Jerome Powell
The central bank faces heightened scrutiny moving forward too.
Miran's confirmation—without resigning from the CEA—risks a sense of political influence over Fed decisions, EY chief economist Gregory Daco earlier told AFP.
Separately, the legal battle by Cook—the first Black woman on the Fed's board of governors—could have broader implications for the bank.
A federal appeals court ruled late Monday that Cook could remain in position while challenging her removal over alleged mortgage fraud. But the Trump administration plans to appeal the outcome, potentially bringing the case to the Supreme Court.
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“The backdrop that we're experiencing, where there is increased political attention on the Fed, is concerning,” Daco said. “History has showed that in times when a central bank is under political influence, the economic outcomes are suboptimal.”
